ENDGAME: TORRIJOS'S BOTTOMLINE ON THE FTA

UNCLAS PANAMA 000326

SENSITIVE
SIPDIS

FROM THE AMBASSADOR FOR THE SECRETARY
WHSC PLEASE PASS TO USTR

E.O. 12958: N/A
TAGS: ECON ETRD PREL PM
SUBJECT: ENDGAME: TORRIJOS'S BOTTOMLINE ON THE FTA

1) (SBU) President Torrijos and First Vice-President Lewis
informed me this morning that VP Lewis plans to travel to
Washington on Monday, April 27 to bring to closure their
efforts to get the U.S./Panama Free Trade Agreement (FTA)
approved in the remaining two months this government has in
office. VP Lewis will seek meetings with President Obama's
Chief of Staff Emanuel, National Security Advisor Jones along
with Deputy National Security Advisor Froman and National
Security Council Director of Western Hemisphere Affairs
Restrepo, Speaker Pelosi, and U.S. Trade Representative Kirk.


2) (SBU) VP Lewis explained that the purpose of his trip is
to define clearly what the Torrijos administration can
deliver and to seek clarity from the USG on whether what the
Torrijos administration can offer is sufficient to move the
treaty to and through Congress. Torrijos and Lewis were both
heartened by their meetings at the Summit of the Americas,
particularly by President Obama's comments (at the SICA
meeting) expressing his desire to see the FTA passed during
Torrijos's time in office.

3) (SBU) Lewis repeated the GOP's bottom line: if the
Administration sends the FTA to Congress, President Torrijos
will convene a lame-duck session of the National Assembly to
use his party's majority to push through the package of labor
reforms being finalized now in Washington, along with
legislation to immobilize bearer shares. Lewis said that the
signal of partnership that would be sent by approval of the
FTA would put the U.S. and Panama on strong footing to
address the contentious issue of tax-information exchange
agreements as a stand-alone issue, preferably in the
OECD/G-20 context to avoid injecting inflammatory
"nationalist" (read anti-U.S.) rhetoric into the discussion.
President Torrijos was explicit that he does not have the
political capital to tackle the anti-TIEA lobby at the same
time he is dealing with labor issues and immobilizing bearer
shares. (Comment: We agree. It is taking an enormous amount
of political capital to stand down the bearer share lobby.
End Comment.)

4) (SBU) After VP Lewis delivers his message outlining the
bottom line of President Torrijos, he wants to shake hands
(ideally with Chief of Staff Emanual) on a FTA game plan for
the United States and the Torrijos Administration. President
Torrijos told me that he sees two options before us. The
first option--Plan A--is President Obama submitting the FTA
for Congressional ratification. After submission to
Congress, President Torrijos will push the labor reform
package and legislation to immobilize bearer shares through
the National Assembly (dominated by his party). President
Torrijos then expects the Congress to vote on the FTA. If
Plan A is not viable from the American perspective--either
for timing reasons, or because the U.S. insists that the FTA
be conditioned on a TIEA--then President Torrijos will put
FTA negotiations "on ice" and end his term in office with his
current strong relationship with the United States. He will
pass the FTA to the next administration and graciously lose
what he considers a "legacy" issue.

5) (SBU) Comment: For President Torrijos and VP Lewis, whose
fathers negotiated and signed the Panama Canal Treaties, the
FTA represents their chance to be remembered as leaders who
sealed the deal cementing a partnership between the U.S. and
Panama. Their enormous political and emotional investment
has enabled us to put together a very attractive package: not
only labor reforms but also effective action to address the
bearer share issue flagged as the key deficiency both by FATF
and our own money laundering report. In the end, this FTA is
not centrally about trade: while the agreement brings
duty-free access for U.S. goods, what little Panama sells the
U.S. already enters duty-free. For the Torrijos
administration, the FTA is primarily an investment in a
partnership with the U.S. If the price for that partnership
is beyond what his administration can pay (i.e., a TIEA),
President Torrijos has instructed his Vice President to focus
first and foremost on preserving the strong relationship with
the U.S. he hopes will be a key legacy of his administration.
To avoid the damage to relations that would result from the
U.S administration making a TIEA a condition for the FTA,
Torrijos and Lewis will sacrifice their goal of FTA passage.
I cannot state strongly enough how beneficial it would be for
our foreign policy interests to ratify the partnership with
Panama under this administration so we can tackle the TIEA
talks on the strongest possible footing with the incoming
government, which may well take many months to get fully
formed and operational. End Comment.
STEPHENSON